Eurozone recession risk ‘very real’ as slowdown infects services sector
Germany slipped into recession territory last month as the Eurozone teetered on the brink of stagnation, data revealed today.
The bloc’s biggest economy showed the weakest growth in business activity for three years, according to IHS Markit’s Germany Composite PMI.
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“A technical recession now looks to be all but confirmed,” IHS Markit principal economist Phil Smith said.
Meanwhile the Eurozone barely grew at all, registered a score of 50.1, just above IHS Markit’s 50 no-change mark.
Inflows of new business dropped at the fastest rate for more than six years, while employment growth hit its lowest level since early 2016.
A global manufacturing downturn and prolonged Brexit uncertainty meant confidence was close to August’s 75-month low, too.
“The Eurozone economy ground to a halt in September, the PMI surveys painting the darkest picture since the current period of expansion began in mid-2013,” IHS Markit’s chief business economist, Chris Williamson, said.
“The risk of recession is now very real,” he added.
Manufacturing remained the Eurozone’s weakest sector, having suffered its worst month in seven years in September.
But IHS Markit warned the industry’s downturn is now infecting the services sector, which has posted one of its weakest growth rates for six years.
Services slipped to a 51.6 measure of growth, down from 53.5 in August, its weakest rise in activity since the start of the year.
New business volumes also climbed at a slower pace as foreign demand dropped and exports fell for the 13th month in a row.
“The growing risk of recession, coupled with a further moderation of inflationary pressures, will add to expectations that the European Central Bank (ECB) will need to do more to stimulate the economy in coming months,” Williamson said.
Germany has balked at the central bank’s plans to restart quantitative easing in the bloc, however.
German ECB member Sabine Lautenschlaeger quit more than two years before the end of her term last week, while Bundesbank’s boss has said the central bank must hold “intense discussions” to avoid the perception it is bankrolling governments.
But Germany’s economic performance in September fell to its lowest reading for three years., sinking from 54.8 in August to 51.4.
“Business activity grew at the weakest pace in three years, while inflows of new work were at a 5-year low. Germany is set for a technical recession,” Markets.com’s chief market analyst, Neil Wilson, warned.
He added that the ECB has few levers left to pull to pull the Eurozone out of its tailspin, however.
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“These are recessionary readings and as such will heap pressure on the ECB to be more accommodative,” Wilson said.
“Faced with a recession, however, the ECB is out of ammo. It’s already about as loose as it can go – what good does another 20bps of cuts do?”